You can’t make this stuff up.
I had a member of a client email me last week that they received a letter from their insurance carrier, Aetna, stating that they would be getting a rebate check from their employer due to a provision in the health care reform law. This group has 60 employees enrolled in their insurance plan, they span over 20 states and have a monthly premium of $71,000. The majority of employees reside in Ohio and New Jersey where no rebates were issued but this employee is in Arizona. So I reached out to Aetna and asked if there were other rebates being issued. They confirmed that two other checks had been issued. One for Pennsylvania and one for Virginia.
Here is where the fun begins. Here is the step by step process we did to help the client.
1 – I contacted the group and asked if they had received checks from Aetna and they confirmed receipt.
2 – I asked for the amounts to calculate what the group gets to retain and what they must rebate back to their employees who live in these three states. Fortunately it was a pretty easy calculation as there are only three employees eligible for the rebates with one in each state.
3 – I had to take each employee and determine their contract type and contribution percentage of premiums they pay versus what the employer pays.
4 – How does their payroll work regarding how many pay periods they have per year, and how many pay periods have they already paid out year-to-date.
5 - The next step is to take the rebate check amount and divide it up based on contributions.
The first employee in Arizona had a rebate check in the amount of $357.05. The employer pays 95% of the premium so they get to retain $339.20 and they must rebate the employee $17.85. The employee in Pennsylvania received a rebate check of $200.04 which gets broken down to $190.04 employer and $10 for the employee. Virginia received $165.80 for $157.51 (employer) and $8.29 (employee). In total the group will get $686.75 that is considered income for 2012 and have to rebate their employees the remaining amount.
6 - The employer has a choice in how to pay back the rebate to employees. The best approach, since it is taxable income to the employee, is to reduce the contribution amount of the eligible employee proportionately to their payroll deduction for their current health insurance premiums. It must be done in accordance to the company plan year corresponding to their Section 125 Cafeteria Plan.
In this particular case we are dealing with very easy calculations. The number of employees impacted, the simple contribution levels, and plan year coinciding with calendar year make it simple.
Taking the Arizona employee we were able to come up with the following calculation of his premium rebate: Total rebate is $17.85. Through the end of August they will have already had 18 pay runs of the 26 total. With 8 remaining pay runs it works out to the employee having a reduction in insurance premium contributions of $2.23 per pay.
If you’re brain hasn’t yet exploded let me conclude with this: The annual premiums paid by the group are $840,000. The total rebate checks received were $722.89. This works out to a “savings” of .00084%!!!
I’m so glad we passed PPACA. It is saving my clients already.